Despite challenges in the global chemical market, Indian chemical companies are expecting to see signs of recovery in margins from H2 FY24. This recovery, the company officials say, is driven by increased interest from global companies in sourcing from India, a rising share of specialty chemicals, and robust capital expenditures by Indian chemical firms.
“Long-term prospects of the Indian chemical industry remain positive, given lower cost of production, government incentive schemes as well good domestic demand,” said Vinati Saraf Mutreja, Managing director, Vinati Organics Ltd.
Supporting the views, a recent research report from capital market company SMIFS Limited, indicated that key export markets such as the US and Europe are currently experiencing a slow demand pace with the worst phase of global destocking in the agrochemical space likely behind, and normalcy is expected to resume soon.
The chemical industry, the report said, is finding ways through volatile commodity prices attributed to heightened competition, geopolitical tensions, supply cuts by Organization of the Petroleum Exporting Countries (OPEC) affecting crude oil supplies, and uncertainties in demand.
As per the report, factors such as increased competition from China and a weaker export market are contributing to this volatility. Despite these global headwinds, India's chemical sector remains robust, driven by rising interest from global companies seeking to source from India and the sector's strategic capex to secure future growth.
According to specialty chemicals manufacturer, Anupam Rasayan, a noticeable trend towards increased outsourcing is observed. Three years ago, the company had 24 number of MNC, but today, the number has grown to 29 reflecting an uptick in outsourcing partnerships.
“What's striking is the shift in outsourcing dynamics—where customers previously outsourced a single product, they now entrust Anupam Rasayan with multiple products, indicating both increased volume and higher value collaborations within this evolving landscape,” said Gopal Agrawal, CEO of Anupam Rasayan adding that this resurgence signifies a pivotal moment, showcasing India's burgeoning role as a formidable player in the global chemical landscape.
The valuation of most chemical companies factors in the negatives, and the expected recovery in agrochemicals and pharmaceuticals is anticipated to provide an upward trajectory, Aditya Khetan, Sector Lead- Chemicals and Awanish Chandra, Executive Director SMIFS Limited said in the report.
The SMIFS Limited said that in October 2023, the Asian market, particularly in China and India, witnessed increased demand for fatty alcohols C12-14, contributing to higher prices supported by stable feedstock prices around $800/MT in Malaysia and upward pressure from crude oil prices. However, the Fatty Alcohol Ethoxylates (FAE) market in Asia experienced a quiet period due to economic conditions, with C12-14 prices declining approximately 5 per cent since August.
"Despite the hurdles faced in the global chemical market, Indian chemical companies are poised for a promising resurgence in margins. The anticipated recovery, set to materialise from the second half of FY24, will be due to increased global interest in sourcing from India,” said Agrawal.
“The growing prominence of specialty chemicals, coupled with robust capital investments by Indian chemical firms, underpins this positive trajectory. Q4FY24 is expected to underscore the resilience of the overall chemical industry, fueled notably by the 'Europe Plus One' strategies," he said.
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